CONDITIONAL METHODS IN EVENT STUDIES AND AN EQUILIBRIUM JUSTIFICATIONFOR STANDARD EVENT-STUDY PROCEDURES

The literature on conditional event-study methods criticizes standard event-study procedures as being misspecified if events are voluntary a nd investors are rational. We argue, however, that standard procedures (1) lead to statistically valid inferences, under conditions describe d in this article; and (2) are often a superior means of inference, ev en when event-study data are generated exactly as per a class of ratio nal expectations specifications introduced by the conditional methods literature. Our results provide an equilibrium justification for tradi tional event-study methods, and we suggest how these simple procedures may be combined with conditional methods to improve statistical power in event studies.